Everything You Need to Know About Your Loan Estimate

When getting a mortgage, your Loan Estimate is one of the most important pieces of paperwork you’ll receive. This document—which replaced and combined the Good Faith Estimate and Truth-in-Lending statement—arrives within three days of completing your home loan application. It’s designed to provide key details about your mortgage and loan costs.

Here’s everything you need to know about your Loan Estimate before proceeding with a mortgage.

What Type of Mortgage Will You Receive?

The Loan Estimate not only provides specific details about your chosen loan, it also states this information in easy-to-understand language—divided into sections.

The first section lists your personal information, the address of the property you’re buying and the sales price of this property. Here, you’ll also find information about your loan term (15- or 30-year), the purpose of the loan (refinance or purchase), and the product type (fixed-rate or adjustable-rate). This section also specifies the loan program: conventional, FHA, VA, or another loan.

What are Your Loan Terms and Projected Payment?

To give you an idea of your future monthly payments, the Loan Estimate also provides information on your projected monthly payment. You’ll see your estimated interest rate and your estimated monthly payment, which includes repayment of principal and interest, mortgage insurance, property taxes, and homeowner’s insurance.

This part of the Loan Estimate also states whether the loan has a prepayment penalty, which some lenders charge when borrowers pay off a loan within the first few years. You’ll also find information about a possible balloon payment. Balloon payments are due when a loan doesn’t fully amortize over the term, in which case your final payment is higher to pay off the remaining balance.

What are Your Estimated Closing Costs?

A Loan Estimate is extremely helpful because it also provides information about your out-of-pocket closing expenses – helping you to avoid any financial surprises down the road. Your expenses at closing will likely include paying a down payment and/or closing costs.

Closing costs generally include loan origination fees, underwriting fees, and application fees. You’re also responsible for title search fees, required inspections, the property appraisal, and prepaid costs for homeowner’s insurance, mortgage interest, property taxes, and mortgage insurance premiums.

Pay close attention to this section, because unfortunately, some home buyers underestimate how much of their own money they’ll need to buy a home. It’s easy to calculate your down payment, but the percentage you’ll pay in closing costs can vary considerably depending on where you live. This expense can range from 2% to 5% of the loan amount (or higher).

If the cash you’ll need to close is more than you have available, you shouldn’t proceed with a mortgage loan at this time.

Other Information on Your Loan Estimate

The third page of your Loan Estimate has additional information about the loan. This includes the total amount you would have paid after five years (combining the amount paid for principal, interest, and mortgage insurance), as well as your estimated principal balance after five years.

There’s even information about whether someone is allowed to assume your loan. This is when a buyer takes over your mortgage and continues making the payments under the original terms.

Your lender will also specify whether they’ll continue to service your loan, or transfer servicing to another company.

Final Word

If you agree with the terms on your Loan Estimate, contact your loan officer and express your intent to proceed with the mortgage. Keep in mind, though, the Loan Estimate is just that—an estimate of your mortgage costs. You’ll receive your Closing Disclosure at least three days before closing. This form will have your actual loan details: interest rate, monthly payment, cash needed to close, etc.

Compare your Closing Disclosure with your Loan Estimate, and contact your loan officer if you have any questions.

The loan experts at Blue Spot Home Loans are committed to helping you find the right mortgage for your situation. To start your home loan process, give us a call or fill out the contact form.

Cherry Creek Mortgage Co., Inc. NMLS #3001, dba Blue Spot Home Loans. This material is informational only and not an advertisement to extend credit as defined by TILA/Regulation Z nor an application for credit as defined by RESPA/Regulation X. All applications are subject to underwriting approval and determining applicant’s ability to repay. Not all applicants are eligible for or qualify for all loan products offered. All loan programs, terms, and conditions are subject to change without notice. Rates and terms are valid as of the date of printing/distribution. Cherry Creek Mortgage Company is not endorsed by, nor acting on behalf of or at the direction of the U.S. Department of Housing and Urban Development, Federal Housing Administration, U.S. Department of Agriculture, Veterans Administration or the Federal Government.